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Correlated accidents

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  • L. A. Franzoni

Abstract

This paper investigates cases in which harms are statistically correlated. When parties are risk averse, correlation plays an important role in the choice between liability rules. Specifically, positively correlated harms favor a liability rule that spreads the risk over a multitude of parties, as in the negligence rule. Negatively correlated harms favor a liability rule that pools risks together, as in strict liability. The same applies when parties can purchase costly insurance (first party or third party). This policy recommendation is in line with current products liability law, which places design defects and warning failures under a de facto negligence regime.

Suggested Citation

  • L. A. Franzoni, 2016. "Correlated accidents," Working Papers wp1074, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp1074
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    References listed on IDEAS

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    1. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 2, number 2.
    2. Andrew F. Daughety & Jennifer F. Reinganum, 2014. "Cumulative Harm and Resilient Liability Rules for Product Markets," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(2), pages 371-400.
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    8. Tom Baker, "undated". "Insurance and the Law," University of Connecticut School of Law Working Papers uconn_ucwps-1004, University of Connecticut School of Law.
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    13. Steven Shavell, 2014. "Risk Aversion and the Desirability of Attenuated Legal Change," NBER Working Papers 19879, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Luigi Alberto Franzoni, 2019. "Legal Change in the Face of Risk-Averse Subjects: A Generalization of the Theory," American Law and Economics Review, Oxford University Press, vol. 21(2), pages 394-430.
    2. Luigi Alberto Franzoni, 2022. "Efficient liability law when parties genuinely disagree," Working Papers wp1176, Dipartimento Scienze Economiche, Universita' di Bologna.

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    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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